Berkshire Hills Announces Fourth Quarter Results; Annual Meeting Date Announced

BOSTON, Jan. 25, 2021 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today announced fourth quarter 2020 net income of $15 million, or $0.30 per share, compared to $21 million, or $0.42 per share, in the prior quarter.  The fourth quarter non-GAAP measure of core earnings totaled $14 million, or $0.28 per share, compared to $26 million, or $0.53 per share, in the prior quarter.  The change in earnings is primarily due to pandemic related impacts, including a $9 million increase in the noncash provision for expected credit losses.  

FOURTH QUARTER FINANCIAL HIGHLIGHTS (non-GAAP measures are reconciled on pages F-9 and F-10)

• 2.61% net interest margin
• 71% efficiency ratio
• 9.3% equity/assets
• 79% loans/deposits
• $23.37 book value per share; $22.68 tangible book value per share (non-GAAP measure)
• 0.80% annualized net charge-offs/loans
• 0.52% non-performing assets/assets

Acting CEO and President Sean Gray stated, "Fourth quarter results declined primarily due to higher noncash provisioning for expected credit losses reflecting the persistence of pandemic impacts on economic activity.  These impacts also contributed to lower operating revenue and higher operating expenses.  In this environment, the Bank adhered to its financial and operating disciplines.   Higher net charge-offs were primarily due to four hospitality relationships, including credits which were exited during the quarter.  Total criticized loans decreased, along with loans with payment deferrals.  The net interest margin was supported by a reduction in funding costs.   We managed down our staffing, as well as occupancy, and technology costs.  We continue to adjust operations to protect employees, customers and communities, including moving branch lobbies back to appointment-only access based on local conditions.  Management's actions are targeted to position the Bank for improved results as public health and economic conditions improve."

Mr. Gray continued, "We recently announced important strategic initiatives, starting with our best of breed digital account opening platform.  We've made the right technology investments to support customer preferences for electronic banking.  Consistent with these shifts, we announced the planned consolidation of 16 branches in the first half of 2021.   With the concierge banking offered by our growing team of MyBankers, we expect to smoothly transition customers to nearby branches.  Separately, we entered into an agreement to sell our eight mid-Atlantic branches and we are opening a new Providence commercial banking office.  When these initiatives are completed, we plan to have 106 branch offices located primarily in southern New England and eastern/central New York.  These actions are targeted to focus and deepen meaningful engagement with our communities as a 21^st century purpose-driven community bank that helps everyone access the services they need to live healthier financial lives." 

ANNUAL MEETING

The Board of Directors determined that the Annual Meeting of Shareholders will be held on Thursday, May 20, 2021 and may be convened as a virtual meeting.   The date of Thursday,March 25, 2021 was established as the record date for the determination of the shareholders entitled to notice of, and to vote at, the Annual Meeting.  Further information about the annual meeting will be available in early April at the Company's website at ir.berkshirebank.com.

FINANCIAL CONDITION

Total assets increased quarter-over-quarter by $224 million, or 2%, to $12.8 billion due to a $514 million increase in short-term payroll deposits at year-end, which resulted in higher short-term investments.  Excluding this increase, total assets decreased by $291 million, or 2%, due to ongoing loan runoff. Investment securities increased by $236 million as excess liquidity was reinvested into residential and commercial agency mortgage backed securities.

Total loans decreased by $901 million during the fourth quarter.  Due to the pending agreement for the sale of the Mid-Atlantic branches, Berkshire has reclassified $301 million in loans as assets held for sale.   Excluding this reclassification, total loans decreased by $600 million, or 7%, due to ongoing runoff in all major categories.  Paycheck Protection Program ("PPP") loans decreased by $75 million to $633 million as the SBA loan forgiveness program was initiated.

Total criticized loans decreased by $36 million, or 9%, to $359 million during the fourth quarter, including the sale of $22 million in criticized hospitality loans. Total loans with active and in-process deferrals decreased by $97 million, or 22%, to $350 million as conditions improved for commercial borrowers.    

Total delinquent and nonaccrual loans measured 1.14% of total loans at year-end, compared to 0.98% at the start of the quarter.   Accruing delinquent loans decreased to 0.34% of total loans from 0.45% during the quarter.  Total nonaccrual loans increased by $18 million to $65 million due primarily to two COVID sensitive commercial relationships which were rated as substandard prior to the pandemic, including one 2019 purchased credit deteriorated loan.  Net charge-offs totaled $17 million, or 0.80% annualized compared to average loans.  This included $12 million related to hospitality loans, of which $7 million was related to the above mentioned loan sale.  The allowance for credit losses on loans decreased quarter-over-quarter due to the decrease in total loans, including the impact of charge-offs.   The year-end ratio of the allowance to loans measured 1.58%.  Excluding PPP loans, this ratio measured 1.71% at year-end, and was not materially changed in the second half of the year.  

Total deposits decreased by $251 million during the fourth quarter.  Due to the branch sale, the Company has reclassified $617 million in deposits as liabilities held for sale.  Adjusting for this reclassification, total deposits increased by $367 million during the quarter, including the previously noted $514 million increase in short-term payroll deposits to $1.046 billion.  This was offset by a $209 million decrease in brokered time deposits to $605 million.  All other deposits increased by a total of $61 million, or 1%.  Total borrowings decreased by $131 million to $572 million.  The loans/deposits ratio measured 79% at year-end, decreasing from 86% at the start of the fourth quarter.

Year-end book value per share totaled $23.37 and the non-GAAP measure of tangible book value per share measured $22.68.  Year-end equity/assets measured 9.3% and the non-GAAP measure of tangible equity/tangible assets was 9.0%.  During the fourth quarter, the remaining balance of preferred stock was converted to common shares in accordance with contractual terms. 

RESULTS OF OPERATIONS – FOURTH QUARTER

Berkshire's earnings declined in the fourth quarter compared to the prior quarter, reflecting ongoing impacts of the pandemic on the Company's results of operations.  Most of the impact was due to the $9 million increase in the noncash provision for expected credit losses on loans.  Further, interest income was negatively impacted by non-accrual loans and expense was affected by higher loan workout expense.   GAAP earnings per share decreased by $0.12, or 29%, and the non-GAAP measure of core earnings per share decreased by $0.25 or 47%.  The GAAP measure of pre-tax, pre-provision net revenue ("PPNR") increased quarter-over-quarter by $3 million to $27 million, while the non-GAAP measure of core PPNR decreased by $6 million to $24 million.  The Company focuses on this measure of operations as a key measure of operating performance before accounting for estimations of future pandemic related credit losses. This decrease was due to a $2.6 million decrease in core revenue and a $3.7 million increase in core expense. 

The revenue decrease included a $1 million decrease in net interest income as a result of lower earning assets and higher nonaccrual loans.   The net interest margin was stable at 2.61% and benefited from a 0.14% decrease in the cost of deposits, along with higher interest revenue related to PPP loan forgiveness.  Time deposit costs decreased including the impact of lower brokered deposits and maturities of higher rate CD's.   The unamortized balance of deferred PPP fees totaled $13 million at year-end.   Total fee income decreased by $1 million due to a seasonal decrease in mortgage banking revenue. 

The provision for expected credit losses increased quarter-over-quarter by $9 million to $10 million, primarily due to a qualitative assessment of credit migration in the loan portfolio.   The level of the year-end allowance is intended to absorb pandemic related expected credit losses over the next seven quarters based on information and third party forecasts at year-end. 

Non-interest expense decreased quarter-over-quarter by $1 million, due to higher noncore costs recorded in the third quarter related to the CEO separation.   The non-GAAP measure of core non-interest expense increased by $4 million due primarily to a lending operations project which was completed during the quarter.   Full time equivalent staff in continuing operations at year-end totaled 1,505, compared to 1,507 positions at the start of the fourth quarter and to 1,550 positions at the start of the year.  Occupancy and technology expense decreased quarter-over-quarter.   The fourth quarter effective tax rate on continuing operations was a benefit of 10%.

Net non-core adjustments to core income totaled $1 million in the fourth quarter.  A final loss was recorded on discontinued national mortgage banking operations as the Company completed the wind-down of these operations, with no further cost recognition expected.  This was partially offset by net securities gains and other non-core items.  The Company has announced strategic initiatives for the sale and consolidation of branches in the first half of 2021.   The Company expects to recognize a noncore net gain on the sale of these operations and non-core charges in conjunction through these consolidations.

BE FIRST CORPORATE RESPONSIBILITY UPDATE

Berkshire is committed to delivering purpose-driven performance. Learn more about the steps Berkshire is taking to be a values-based brand for all its stakeholders at www.berkshirebank.com/csr and in its most recent Corporate Responsibility Report.

Key developments in the quarter and year include:

• Continued Investment in Community Recovery & Resiliency: As people and small businesses in neighborhoods across the Company's footprint struggle through the impacts of the COVID-19 pandemic, Berkshire's Foundation is answering the call providing a record $3.8 million in grant funding to 502 organizations in 2020. These critical investments included recent contributions to local food banks to meet increasing demand for services across the Company's footprint. 
• Enhancing Thirty Party ESG Ratings: The Company continued to improve its Environmental, Social and Governance (ESG) ratings with third party agencies and as of December 31, 2020 the Company received ratings of: MSCI ESG- BBB, ISS ESG Quality Score - Environment: 2, Social: 1, Governance: 3 and Bloomberg ESG Disclosure- 41.67. The company is also rated by Sustainalytics.   Additionally, the Company is included in the Bloomberg Gender Equality Index. 
• Awards & Recognition: Berkshire was named a recipient of the 2020 Communitas Award for Leadership in Corporate Social Responsibility recognizing its' continued performance through the Be FIRST Commitment, as well as the company's comprehensive corporate responsibility, social impact and sustainability strategy. In addition, the Bank was recognized by the American Bankers Association Community Commitment Awards for its Be FIRST Commitment in the Economic Inclusion category.

INVESTOR CONFERENCE CALL AND INVESTOR PRESENTATION

Berkshire will post an investor presentation at its website at ir.berkshirebank.com with additional financial information and other information about the quarter.

Berkshire will also conduct a conference call/webcast at 10:00 a.m. Eastern time on Tuesday, January 26, 2021 to discuss the results for the quarter and provide guidance about expected future results.  Participants are encouraged to pre-register for the conference call using the following link:  https://dpregister.com/sreg/10151338/e0b6214914.  Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call.  Participants may pre-register at any time prior to the call and will immediately receive simple instructions via email.  Additionally, participants may reach the registration link and access the webcast by logging in through the investor section of Berkshire's website at http://ir.berkshirebank.com.  Those parties who do not have Internet access or are otherwise unable to pre-register for this event, may still participate at the above time by dialing 1-844-792-3726 and asking the Operator to join the Berkshire Hills Bancorp (BHLB) earnings call.  Participants are requested to dial-in a few minutes before the scheduled start of the call.    A telephone replay of the call will be available through Tuesday, February 2, 2021 by dialing 877-344-7529 and entering access number 10151338.  The webcast will be available on Berkshire's website for an extended period of time.

ABOUT BERKSHIRE HILLS BANCORP

Berkshire Hills Bancorp is the parent of Berkshire Bank, a 21^st century community bank pursuing purpose driven performance based on its Be FIRST corporate responsibility culture.  Headquartered in Boston, Berkshire operates 130 banking offices in seven Northeastern states, with approximately $12.8 billion in assets.

FORWARD LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements from the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. There are many factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see Berkshire's most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission and available on the SEC's website at www.sec.gov.

Further, given its ongoing and dynamic nature, it is difficult to predict what continued effects the COVID-19 pandemic will have on our business and results of operations. The pandemic and the related local and national economic disruption may result in a continued decline in demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; an increase in our allowance for credit losses on loans; a decline in the value of loan collateral, including real estate; a greater decline in the yield on our interest-earning assets than the decline in the cost of our interest-bearing liabilities; and increased cybersecurity risks, as employees increasingly work remotely.

Accordingly, you should not place undue reliance on forward-looking statements, which reflect our expectations only as of the date of this document. Berkshire does not undertake any obligation to update forward-looking statements.

NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles ("GAAP").  These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition.  They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information.  A reconciliation of non-GAAP financial measures to GAAP measures is included on pages F-9 and F-10 in the accompanying financial tables.  In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders. 

The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense.  These measures exclude items which the Company does not view as related to its normalized operations.  These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations.  Discontinued operations are the Company's national mortgage banking operations which the Company exited.  Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees.  Merger costs in 2019 were primarily related to the acquisition of SI Financial Group.  Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales.  Restructuring costs also include severance and consulting expenses related to the Company's strategic review.  They also include costs related to the consolidation of branches, including eight branches for the full year of 2019.  The Company recorded a full impairment of its goodwill in the second quarter of 2020, which was classified as noncore.  Noncore charges in the third and fourth quarters of 2020 included costs related to separation with the former CEO in the third quarter, and consulting for the CEO succession process in both quarters.   A non-core gain was recognized on the sale of a specialty commercial insurance business line in the fourth quarter.

The Company has introduced the measure of Core Pre-Provision Net Revenue ("Core PPNR") which measures core income before credit loss provision and tax expense.  Due to the non-cash projections introduced into the calculation of income by the new CECL accounting standard, the investment community is placing more emphasis on PPNR in order to measure the results of operations and to compare them across banks which may have widely varying estimates of future economic conditions that affect their provision expense and reported earnings.  The Company also calculates core PPNR/assets in order to utilize the PPNR measure in assessing its comparative operating profitability.

Non-core adjustments are presented net of an adjustment for income tax expense.  This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to core income.  The efficiency ratio is adjusted for non-core revenue and expense items and for tax preference items.  The Company also calculates measures related to tangible equity, which adjust equity (and assets where applicable) to exclude intangible assets due to the importance of these measures to the investment community. References to organic growth and organic change exclude balances acquired in bank mergers. 

CONTACTS
Investor Relations Contact
David Gonci; Capital Markets Director; 413-281-1973

Media Contacts:
John Lovallo
Email: [email protected]
Tel: (917) 612-8419

Cate Cronin
Email: [email protected]
Tel: (202) 738-7302